Microsoft: $1 of piracy = $5.50 in “lost opportunities”

Each dollar lost to software piracy equals $5.50 in lost opportunities, claim …

Each dollar lost to software piracy equals $5.50 in lost opportunities, claims Microsoft. A new white paper released by IDC and funded by the software giant looks at how copyright infringement affects the software ecosystem as a whole, not just how it affects a single corporation. IDC claims that, if Microsoft were to make back each of those lost dollars, partner companies would gain $4.37 in increased revenues and $1.13 in lower operational costs. That's assuming, however, that the Business Software Alliance's estimated losses due to piracy are correct—an assumption that IDC makes in this report, despite having admitted in the past that the numbers are misleading.

Stolen software can slow down the velocity of sales or even halt an entire project when illegal software is discovered. "Worse, in many emerging markets where legally licensed software is difficult even to obtain, it can be next to impossible for a legitimate partner to operate," comments Microsoft.

IDC says that companies can be forced to compete with others that use unlicensed software (therefore reducing their own operating costs unfairly) and that these companies can waste time and effort in dealing with clients who are running illicit software. They could also be limited in creating a better customer experience through more advanced product features not available on illegal versions of the software.

"Even in a healthy ecosystem, illegal software causes hidden costs and friction in the sales and deployment processes," said Microsoft's director of License Compliance, Michael Beare, in a statement. "At its worst, rampant piracy in some economies is tearing down the opportunity for legitimate businesses to exist and thrive."

Of course, it wouldn't be Microsoft if the situation couldn't be turned into an opportunity. The report notes that much of license misuse is inadvertent and that "savvy firms" can help customers "true up" their software in order to install more sophisticated programs. The IDC report quotes a number of Microsoft Certified Partners that have used the discovery of illegal software as a way to get in with customers and make things right, thereby helping them save face and earn trust.

"Drop the piracy rate a few percentage points, and billions would move to the industry's bottom line," says IDC. There's only one major caveat to this statement, and possibly the entire report. IDC bases this report on numbers provided by the Business Software Alliance, the methodology for which has been questioned heavily in recent years. As discovered by The Economist, the BSA's piracy numbers are determined by a nebulous and questionable use of statistics in order to arrive at an estimated number.

In fact, even if the numbers weren't dodgy, IDC itself admitted in 2004 that the BSA's language when providing its estimates was misleading, as many of those who use the illegal software cannot afford and would never buy the legit versions in the first place.

"I would have preferred to call it the retail value of pirated software," IDC research director John Gantz said at the time.

So, what can we take away from this report? There's no question that the presence of illegal software in business and among clients can cause problems for legitimate companies trying to make a living. However, not every single dollar that IDC, the BSA, and Microsoft think has been "lost" to copyright infringement can be turned around into a dollar worth of sales, so take this report with about $5.50 of salt.

Jacqui Cheng
Jacqui is an Editor at Large at Ars Technica, where she has spent the last eight years writing about Apple culture, gadgets, social networking, privacy, and more. Emailjacqui@arstechnica.com//Twitter@eJacqui